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Wednesday, April 28, 2010

Mr. Shashi Twittoor's wicket in the IPL controversy has opened a Pandora's box and heads have already started falling with Lalit Modi's departure. The IPL controversy is threatening to become the biggest cricket scandal ever, bigger even than the match fixing story of the 90s. Politicians, Sports Administrators, Cricketers, Bollywood Celebrities, Gangsters, Mafia, Businessmen, Models.. everyone seems to be involved. The Indian Premier League owes its success to millions of cricket fans across the world. Cricket lovers in India certainly deserve an explanation for all the mess that happened so far.

What is IPL controversy all about?
It all started with Mr. Tharoor's so called mentoring of the Kerala franchise. The war of words with (former) IPL boss, Lalit Modi, revealed that, Mr. Tharoor negotiated with Rendezvous for a higher share of "sweat equity" for his (girl) friend Sunanda Pushkar. This is not the first time Mr. Tharoor is helping someone who is very close to him. "When appointed head of the public affairs division in the UN headquarters in New York, he moved his girlfriend to the office next to him." More over, he is no stranger to controversies. His statements on Pandit Nehru's foreign policy, about Mahatma Gandhi, about India's stand on Indo-Pak relations and his "equivocal" comments on Twitter have created more problems and embarrassment to the government than solving the problems.

Note: Sweat equity is a term used to describe the contribution made to a project by people who contribute their time and effort.

Firstly, Mr. Tharoor's explanations on the sweat equity for Ms Pushkar was unsatisfactory. The minister had told Lok Sabha that “Rendezvous has clarified that it issued sweat equity to its associates in lieu of salary, which is a common practice around the world for start-up ventures”. It must be noted that, Ms Pushkar was awarded 19% stake in the 25% free equity owned by Rendezvous Sports World Pvt Ltd, the company that led the consortium that finally won the team. The value of Pushkar's stake is $15.82 million (about Rs 70 crore). However,

According to Section 79A of the Companies Act 1956, a company can issue “sweat equity” only a year after commencing business. The Kochi franchise was registered only on March 17, 2010.

A company cannot issue sweat equity shares for over 15% of the total paid-up capital in a year or shares of the value of Rs 5 crore, whichever is higher and the firm has to get prior approval of the government. There is proof that Ms Pushkar got more than what is allowed under law.

More over, Mr Tharoor’s argument, that sweat equity was given to Ms Pushkar for providing “intellectual property” to the company, is flawed. For allotting shares for considerations other than tax, a company is supposed to conduct a valuation of the intellectual property. “It has to be carried out by a valuer before awarding sweat equity. In Ms Pushkar’s case, this was not carried out by the company. The explanation provided by the minister clearly shows his association with Rendezvous was not an indifferent one as he claims [Economic Times]. This triggered "trial by media" and Mr. Shashi Twittoor had to step down.

On the other hand, another Twitter fella, (former) IPL boss Lalit Modi, disclosed the names of some of the owners of the consortium that bought the Kochi franchise for $333 million. Modi has also alleged that he was told by Tharoor not to ask who these shareholders were. "The Franchise Agreement does have a confidentiality clause, which prohibits disclosure of the agreement, other than as might be required under the law, without the prior written agreement of both parties (the consortium and the IPL arm of the Board of Control for Cricket in India) [The Hindu]." Mr. Tharoor and the co-owner(s) of Kochi consortium have blamed Mr. Modi for betraying the confidentiality clause. The issue got even worst when a Kochi consortium co-owner has alleged that Mr. Modi offered the owners $50 million as a 'bribe' to withdraw from the bid after they had won it. The IPL Chairman has strenuously denied this.

This entire murky affair attracted the attention of the nation and raids by Income Tax department made the matters worst. BCCI and IPL governing council suddenly woke up (as if from deep sleep) and realized that there is something fishy in the entire gamut of IPL.

What really went wrong?
The primary purpose of corporate leadership is to create wealth legally and ethically. IPL management has given a decent burial to both legality and ethics. There are no well defined stringent rules to ensure the transparency in the management of IPL. There are serious doubts regarding the ownership of Kings XI Punjab, Rajasthan Royals, Kolkata Knight Riders franchises [More here and here]. There is enough proof to show Mr. Modi's finantial irregularities and his influence on bidding process [More here and here]. He ran the IPL like a one-man show. His dictator like leadership has struck coup de grâce to democratic decision making in corporate body (IPL). "He antagonised the BCCI general body, whose support he may need to remain in control. Mr. Modi embarrassed the Government on the apparent boycott of Pakistan players by team franchisees in the run-up to IPL3. As controversies swirled around him over financial irregularities and him influencing the bidding process, he shrugged-or tweeted-off the allegations as if the laws of the land and public scrutiny were such banalities meant only for lesser mortals. [India Today]"

This forced the BCCI boss Mr. Shashank Manohar to assert that, "IPL doesn’t belong to any individual. It remains a BCCI property and we don’t want anybody’s advise on who should run the tournament or how to go about organising it. The IPL’s governance is BCCI’s prerogative."

The way forward
Shashank Manohar is a powerful man who, unlike Mr. Modi, doesn't speak much and when he speaks every one listens. Mr. Manohar seems to be the right man in the right place. One can only hope that he plays a significant role in cleaning up the IPL mess [More here].

BCCI has already appointed a 3 member committee to probe into IPL functioning and the members of the opposition parties are demanding joint parliamentary committee (JPC) to look into the matter which is definitely a good idea. Government should seriously think about constituting a JPC to probe into IPL affairs. There is an urgent need to ensure greater transparency and accountability on the part of both the organizers and the franchisees. The Indian Premier League owes its success to millions of cricket fans across the world and cricket lovers in India certainly deserve an explanation for all the mess that happened so far.